Receivable/Accounts - Information for Credit and Collection Issues

Wednesday, February 2, 2011

The Collection Agency Legal Department - Fact or Myth? Part I: Should I Be Worried?

So, let’s say you receive a call from a collection agency’s ‘legal department’, or a collection agent threatens to take legal action against you for an unpaid debt.

Honestly speaking, unless you owe over $1000 for a debt, it is cost-prohibitive to take legal action against you. In Ontario, to issue a claim, have it properly served, get default judgment, and then execute on it via a garnishment, the legal costs will be approximately $300. So unless your debt is significant, the cost of securing a judgment outweighs the amount owed.

That being said, I have had a number of clients that demanded I take legal action on their $400 file, and I’ve seen $10,000 accounts that simply aren’t worth the cost of going down the legal road, because the debtor is already being garnished, is unemployed, or the like. Now with the 2002 Limitations Act in Ontario, a lot of creditors are getting judgments just to secure their debt beyond the two year mark.

Many clients will have judgments prior to listing their account with a collection agency. Any order by the Ontario Housing Rental Tribunal can be transferred to the small claims court for a small fee and then acted on (with a wage garnishment, for example).

For a collection agency to threaten to take legal action, they must have permission from the client to potentially take that action. Many agencies have contracts with their clientele that either allow blanket legal action, or the ability to request legal action on a file. But again, that will cost someone (either the agency or the creditor) $300+ in legal fees.

So, the short answer to part one of this article is: if you are being threatened with legal action over an $80 video rental account, no, you shouldn’t be worried. It's ludicrous (and likely illegal) for anyone to suggest you are going to court over $80. That being said, if you owe a significant four-figure amount of money to a creditor, and the agency knows you are gainfully employed or have liquid assets, the odds of legal action go up.


  1. can easyhome finacial garneish your wages in pei

  2. Yes, Easyhome can. However, before they can garnish someone, they need to acquire a judgment. The question is:

    a) How much is owed?

    b) Are their prospects good for legal action? For example, if the consumer is refusing to pay, and is gainfully employed (and subject to a wage garnishment).

    c) Is the threat of legal action legitimate? Some untrained collection agents threaten legal action on everything, and some law firms issue letters on behalf of their clientele without intent to undertake legal action. If the potential for legal action is credible, then possibly.

    I hope this is of some help, speaking in general terms.

  3. how long dose it take from the time collection agency to threaten to take legal action garnish someone can they just take money out of your bank account at anytime even if u did not sign anything or know of this?? a collection agency is saying they r gonna do this to me because of a hydro bill witch owes me 200.00 and i owe them 200.00

    1. Very good questions.

      1) It is incredibly unlikely someone will sue you for $200. They may affect your credit rating, but they most likely will not take legal action for a small amount.

      2) No one can garnish or withdraw funds from your bank account without a default judgment, a cheque, consent to do a pre-authorized payment, or some other valid channel to seize funds.

      If you need further advice, feel free to post here or send me a private email.


  4. What is the legal stance on collection agencies applying additional interest charges to a debt they have purchased? If the original amount is around $300 and they are trying to collect over double that due to supposed accrued interest THEY are applying, do they have legal right to do so? If you never signed any contracts with them, how can that be legal?
    Thank You.

  5. My friend was mailed a letter for a credit card to his address with a name that is similar to his own. But he does not go by this name ANY WHERE. The debt is for $756 for MBNA and the collection agency is now threatening to take him to court only after a year of seeking payment from him. This is his first letter from this collection agency. Before hand it was from MBNA themselves.

    What can he do?

  6. Hi Ashley -- it sounds like the agency has confused your friend's information for the actual consumer's, from data given to them by MBNA. They are assuming they have the right party, but if your friend is absolutely certain that they have never used MBNA, they should be fine.

    First, no one is going to start legal action for $756. But if they did, they would need to prove the debt by providing an original credit application, statements of account, and such. Your friend would then have 20 days to file a defense, in which they could state the agency has the wrong identity, and without proof, judgment would not be awarded.

    If you or your friend have some more specific questions, by all means give me a call at my office at 226-444-5695, or email me directly at

  7. I owe a company over 400,000 dollars. How likely is it they will garnish my salary.

    1. Hi -- that's a significant sum of money. It's quite possible that they would want to garnish your wages. There need to be a few things in place first -- 1) it needs to be within the statute of limitations to acquire a judgment, 2) they need to acquire a judgment, and 3) they are aware of your current employment and wages to be able to issue a notice of garnishment. Does that help?

  8. I entered in default with TD (Ontario)in 2005. Sums were: $2,000 a bank draft and $20,000 on Visa.

    Now I am living in BC. In January I opened an account with TD (my mistake). In march, I applied for a credit card and they found out that I was owing them money. My balance was $1,600 but they only took $1,400. I closed the account.

    Of course, My credit card application was not approved.

    I started to receive calls from two collection agencies in Ontario. One representing the credit card and the other one representing the bank.

    Are they still allowed to collect this debt?
    Can they garnish my salary?. I do not have any properties in Canada and my bad credit report it is not important for me.
    What should I do?

    1. This is what is known as 'power of offset'. When you open an account or take a loan from the bank, often in the contract is this clause allowing them to take funds owed from another instrument or product held at the same institution. Yes, they are entitled to do so.

      They may be able to acquire a judgment on the Visa and garnish your salary or other assets. If the court recognizes this power of offset transfer as a partial payment on the account (although an unwilling one) it could reset the statute of limitations. Best consult with a lawyer on this, as it's a large sum of money and you should know your rights before anything further happens.

  9. What happens when you have debt around 10,000 and you move to Europe? There is no income in Canada they could try and garnish, but would you get into trouble not showing up for court when they try to get a judgement?

  10. Well, that's a murky area. There are all sorts of rules about transferring judgment to another country, and some of the provinces in Canada have an Absconding Debtors Act, and so on. In reality, these rules are not frequently brought into play. For $10,000 and if you are no longer in the country, legal action may not be likely. However, if you are planning on returning to Canada in the future, I would suggest researching all your options.

  11. Hi. i was wondering if easyhome could garnish my wages. my roommate stole all of my stufd when i was at work in alberta. i have called the police and have an open file. but now i have collections saying that thay will take my money.
    so my question is can they and would i beable to countet sue them since its a open file. with the bc rcmp??

    1. Hi Michaud,

      There are a number of items to address here:

      1) Yes, Easyhome can garnish your wages, if they have a judgment in place first. You must be served with a statement of claim before they can file a garnishment order.

      2) You did the right thing by filing a police report for the theft by your roommate, but that will be considered a separate matter -- Easyhome is not pursuing you for possession of the furniture, but for the *contract* for the loan/financing of the furniture. I don't believe you can issue a counterclaim against Easyhome just because there was a theft.

      3) Your post raises another question -- did you have insurance for your home (or even on Easyhome's contract) to cover a loss from theft?

  12. I had a Capital One Mastercard that i couldn't pay and it has gone to collections through FDR (financial debt recovery)
    i have been working for a little over a year, before that i was on social assistance
    i was making 50.00 payments a month my last being in january 2013 but i have fallen on hard times and haven't made a payment since
    they say my bill is now 1450.00 and they will close it outright for 800.00 other than that they told me they will garnish my wages if they do not receive the monies this friday.
    is there any truth to this?
    what can i do?

    1. Hi there ... a couple of points.

      1) FDR cannot garnish your wages without a judgment. If they have one, they can file this friday, otherwise they need to serve you with a statement of claim.

      2) If you have paid last as of January, they can take legal action, but $1450 is pretty small -- it would cost them about $300 to get a judgment, so they might not find it worth the trouble.

      My opinion is either see if you can settle the account (and get a letter before you settle!) or negotiate small, regular payments. The biggest worry is if they are still applying interest -- if they are, your small payments just have you treading water. See if you can get a letter offering to freeze the balance as long as you make payments.

      I hope this is useful.

  13. Easy financial is threating to garnish my wages. I fell through some hard times and I am now getti bff a consumer proposal. I borrowed $1800 from easy financial. I missed the first payment and they called my landlord and my work. They even stated they have no record of it.
    I am waiting for my consumer proposal to be complete. It is now with the trustee.
    Can they call my work and landlord?

    1. Creditors don't have the same restrictions on calls as collection agencies, but if they are calling your landlord and work, you definitely need to let your trustee know … often a call from them to the creditor will put an end to that.

  14. my friend did not pay utility company. The utility company billed her with unexplainable charge in which the consumption was higher during the time that the unit is empty because they were away on vacation. now, collection is threatening her to sue her in the court (for like $600 in debt including interest). is this legal, and can they garnish her income because of this? as per information, we also know other people who have same complaint against that utility about issues of overcharging their clients, and when clients complain, they do not take action on it. is there any regulatory body or association that helps consumers in Canada?
    thank you

    1. Yes, there are regulatory bodies that manage collection agencies in each Province that you can inquire with. However, to file a legal claim in Ontario Small Claims court, the cost of filing is easily $300-400, so it is unlikely they will file for $600. If they did file a claim, they would have to provide detailed records of how the $600 balance was calculated, and then your friend would have an opportunity to file a defense.

      Does this help?